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EPA’s Playbook Unveiled: A Story of Fraud, Deceit and Secret Science

Part 1 :: How This Phony CIA Agent Pulled Off a ‘Scam’ to Impose Environmental Regulations on Americans

Kevin Mooney / @KevinMooneyDC / February 10 2015

Remember the EPA bureaucrat who got caught receiving $900,000 in pay without working because he claimed he also was employed by the CIA?

According to a report from the Senate Environment and Public Works Committee, the man, former climate policy expert John Beale, “retired” when questions arose about his spotty attendance and expense records.

Only he didn’t file his retirement paperwork and continued to draw an active-duty salary for some time after. His boss at the time in the EPA’s Office of Air and Radiation, now-EPA Administrator Gina McCarthy, knew this for about seven months and did nothing to stop it.

>>> This is the first of a two-part series.

“On March 29, 2012, an OAR official raised concerns about Beale’s retirement when he informed McCarthy that Beale was still on payroll,” the report stated.

“Despite being aware of the fact that one of her subordinates was collecting a paycheck without providing any work product, this arrangement continued for seven more months before McCarthy ever contacted Beale.”

In December 2012, McCarthy met with Beale for the first time in nearly 15 months, and he informed her that he was no longer planning on retiring. Two more months passed before concerns with Beale were officially reported to the inspector general. On April 30, 2013, McCarthy had cause to fire Beale, but instead elected to allow him to voluntarily retire with full benefits.

Liz Purchia, press secretary for McCarthy, told The Daily Signal in an email: “[McCarthy] believed he was retired, and [that] was the reason he was not in the office.”

How Did He Do It?

According to the Senate report, Beale’s career at the EPA was marked by relentless dishonesty on matters large and small and a cadre of supervisors who, like McCarthy apparently in the matter of his retirement pay, enabled his self-dealing behaviors.

He claimed an injury so he could ride first-class on flights for government business, which in one case drove the ticket price from $1,000 to $14,000. He forged expense forms, claimed to be away on CIA business for 2½ years worth of work days and flew to Los Angeles and stayed in posh hotels on the EPA’s tab for family visits that had nothing to do with agency work.

Few even attempted to question Beale’s frequent absences, enormous expense reports, exorbitant salary—he retired as the agency’s highest-paid employee—and lack of accountability. He was personally popular, well-connected and believed to be among the agency’s most effective employees.

But Beale’s greatest deception has nothing to do with first-class flights and fancy hotels.

Beale, who is serving a 32-month sentence in the federal prison in Cumberland, Md., for pleading guilty to felony theft of government property, spent most of his career devising regulations under the Clean Air Act that are justified by science few have seen and no one has peer-reviewed, according to the Senate report.

“We should all question how John Beale became a senior official at the EPA and played a major role in long-lasting policy decisions while pulling off a scam I thought only Hollywood could make up,” Sen. David Vitter, R-La., told The Daily Signal.

“But this egregious case helped us successfully reveal how EPA has wasted taxpayer resources and mismanagement in a manner that is far too common.”

John Beale and the Clean Air Act

Beale’s penchant for bilking the EPA out of money eroded the trust Americans place in their government and EPA employees place in their superiors and coworkers. But it was the role he played beginning in the mid-1990s in creating and implementing regulations pursuant to Clean Air Act that continues to reverberate and linger at the expense of the American people.

Staffers with the Senate Environment and Public Works Committee set out last year to probe the relationship between “sue-and-settle” arrangements and evidence they had uncovered that pointed to the manipulation of scientific data.

What they discovered, as detailed in their report, titled “EPA’s Playbook Unveiled: A Story of Fraud, Deceit and Secret Science,” was how agency officials concealed and misled about the science that underpinned its most significant initiatives and silenced and marginalized their own internal watchdog offices, which enabled the agency to greatly overstate the benefits and underestimate the costs of its Clean Air Act rulemaking.

Under the Clean Air Act, the EPA is required to create National Ambient Air Quality Standards for particulate matter and ozone. The American Lung Association sought to jumpstart this process with a so-called “sue-and-settle” suit filed in 1995.

The idea behind “sue-and-settle” is for friendly plaintiffs to sue a government agency, work out agreeable terms—perhaps even beforehand—and emerge with a court order to implement rules or regulations that could not have been achieved through the democratic or even regulatory process.

The American Lung Association suit resulted in a consent decree that called for the EPA to propose final standards for particulate matter by Nov. 29, 1996, and issue the standards by July 19, 1997. The decree set no deadline for ozone standards because they had been reviewed in 1993 and were not up for another review until 1998.

But Beale and Robert Brenner, his best friend and erstwhile boss, made what documents called a “policy call” and seized on the urgency to produce new particulate matter standards to rush through a new ozone standard as well.

This put the agency in the position of advancing two regulatory standards simultaneously, which it had never done. And it put the agency and those charged with reviewing such regulations, including the Clean Air Scientific Advisory Committee, under impossible deadline pressure.

Why Beale Was Emboldened

The EPA admitted in court papers filed pursuant to the American Lung Association lawsuit that any period shorter than Dec. 1, 1998, for promulgation of the particulate matter standard “would require the EPA to reach conclusions on scientific and policy issues with enormous consequences for society before it has had an adequate opportunity to collect and evaluate pertinent scientific data” and that further time was needed to reach a “sound and scientifically supportable decision.”

Beale had no time for that. He needed an ally to move things along and found one in Carol Browner, the Al Gore acolyte and former staffer who served as administrator of the EPA through both terms of the Clinton administration. Beale formed a close relationship with her and met with her multiple times per week to discuss his progress on this.

The urgency, as well as his influence with the boss and an unwillingness of others at EPA to block him, gave Beale “the mechanism he needed to ignore opposition to the standards.”

Beale’s efforts to include ozone in the new regulations proved expensive for Americans.

The EPA estimated the cost at $2.5 billion, but its estimate was based on receiving the full benefits of cutting ozone but achieving only a partial attainment of the standards, which the law did not permit. The Council of Economic Advisers also measured the cost and found it to be $60 billion—24 times the EPA estimate.

Indeed, as was the case with him getting away with not showing up for work and submitting exorbitant expense reports, succeeding in this regulatory sleight of hand only emboldened Beale to go further.

‘Hidden and Unverified’

That first round of standards, which regulated coarse particulate matter, such as pollen and dust, became known as PM10. But Beale wanted more.

In 1997, with the backing of his superiors, he sought to engage the agency in regulating fine particulate matter—particles a fourth the size of those regulated under PM10 and too small to be visible to the human eye.

But to enact these regulations, EPA first had to produce scientific research that established these smaller particles posed a threat to humans.

To accomplish this, Beale pulled data from two controversial studies—the Harvard Six Cities Study and an American Cancer Society study known as ACSII. The data was not trusted. The air advisory committee pointed out it had not been peer-reviewed, and others indicated Beale was exaggerating the findings for his desired result.

Further undermining those studies’ credibility is that even now, 20 years later, EPA still refuses to release the data, despite McCarthy’s promise to do so during her confirmation hearings.

Though Beal is out of the picture and in prison, his rulemaking techniques he employed to advance the 1997 National Ambient Air Quality Standards for ozone and particulate matter remain firmly entrenched.

“This effort codified EPA’s now customary practice of using fine particulates (PM2.5) to inflate the benefits of nearly all regulations issued under the Clean Air Act,” the Senate report concludes. “Yet the science supporting nearly all of EPA’s alleged benefits remain hidden and unverified.”

Part 2 :: EPA Under Fire for Concealing Controversial Scientific Data, Silencing Skeptics

Kevin Mooney / @KevinMooneyDC / February 11, 2015

For more than 15 years, the Environmental Protection Agency has resisted releasing data from two key studies to the general public and members of Congress. Government regulators used those studies to craft some of the most expensive environmental rules in U.S. history.

When skeptics within the federal government questioned and challenged the integrity of the studies—the Harvard Six Cities Study and an American Cancer Society study known as ACS II—they were silenced and muzzled.

That’s when the Republican staff on the Senate Environment and Public Works Committee stepped in to shine light on the situation, revealing the scope of the scandal in in a report titled, “EPA’s Playbook Unveiled: A Story of Fraud, Deceit and Secret Science.”

>>> This is the second of a two-part series. Read the first part: How This Phony CIA Agent Pulled Off a ‘Scam’ to Impose Environmental Regulations on Americans

The key player in the scandal is John Beale, who was sentenced to serve 32 months in federal prison on Dec. 18, 2013, after pleading guilty to stealing almost $900,000 from U.S. taxpayers.

It was in 1994 that Beale first began to beguile EPA employees and supervisors into believing he worked for the CIA. When he failed to report for work, Beale would enter “D.O. Oversight” on his calendar, which meant he was a director of operations responsible for covert operations at the CIA.

But it was the role Beale played beginning in the mid-1990s in creating and implementing regulations pursuant to Clean Air Act that continues to reverberate and linger at the expense of the American people.

Two Allies at the EPA

Over the past decade, evidence has emerged to reveal the Six Cities and ACS II studies did not support enacting one of the most controversial, far-reaching and expensive regulations in American history. Otherwise, the agency would have provided access to the data without a fight.

The political appointees who led the EPA at the time feared the consequences of enacting such a regulation without being able to offer scientific evidence of its necessity.

Beale needed an ally. He needed someone to explain the problems with the research and the reasons the data could not be released. Someone who could run interference with various actors in Washington. He found one in top EPA official Robert Brenner.

Brenner had recruited Beale, his former Princeton University classmate, to the EPA as a full-time employee in 1989.

Brenner, then deputy director of the EPA’s Office of Policy Analysis and Review within the Office of Air and Radiation, hired his friend despite Beale’s lack of legislative or environmental policy background. He also placed Beale in the highest pay scale for general service employees—a move typically reserved for those with extensive experience.

He then allowed Beale to collect retention bonuses, which go to only the most highly qualified employees to keep them from jumping ship—an unlikely scenario for a man who had picked apples and worked in a small-time law firm in Minnesota before joining the agency. Employees are supposed to be eligible for such bonuses—potentially worth as much as a fourth of the employee’s annual salary—for only three years, but Brenner helped Beale receive them for more than 10.

The two would work together at the EPA for 25 years—during which time the Office of Policy Analysis and Review would grow “in both scope and influence” as Beale and Brenner worked in tandem to muzzle dissenting voices within the White House Office of Information and Regulatory Affairs (OIRA) and the EPA’s Clean Air Scientific Advisory Committee.

‘Beale Memo’ Details Regulatory Agenda

At the crux of their agenda—the initiative that would build their legend within the agency—was implementation of a fine particle standard regulating air pollution.

The formula had been set with the American Lung Association sue-and-settle agreement and codified in a confidential document known as the “Beale Memo,” which described how Beale pressured regulatory and clean air bodies to back off criticisms of EPA rulemaking both within the agency and in correspondence with members of Congress.

The EPA attempted to conceal this document from Sen. David Vitter’s committee investigators, but a conscientious whistleblower “turned it over surreptitiously,” the report said.

The memo outlined how Beale and Brenner would work to compress the time the Office of Information and Regulatory Affairs and the voluntary Clean Air Scientific Advisory Committee had to review regulations so they could get away with using “secret science.”

The Clean Air Scientific Advisory Committee opposed from the start the move to regulate fine particulate matter. Members claimed there was no precedent or court order to establish these regulations, that research had not distinguished between dangers posed by PM 10 particles and those a fourth that size under PM 2.5, and that the PM 2.5 target was arbitrary and tied to no known science. (PM stands for particle matter, a term “for particles found in the air, including dust, dirt, soot, smoke, and liquid droplets,” according to EPA.)

Further, the committee, known as CASAC, complained it was being asked to do the work that took eight years on the previous air quality review in 18 months.

“The Beale memo is interesting in that it provides evidence of Beale’s direct role in ensuring concerns raised by other agencies, CASAC members and OIRA were not considered in the final rulemaking,” wrote Luke Bolar, spokesman for Vitter, in an email to The Daily Signal.

“While there were major concerns with the science and the cost-benefit analysis as outlined in comments filed on the rule, the Beale memo was written to push back against OIRA publicizing those concerns,” Bolar added. “They didn’t have to directly ‘blunt’ criticism, as Beale got his way through his close ties to Mary Nichols (then head of the Office of Air and Radiation) and Carol Browner (EPA administrator.”

Long-Lasting Impact

Efforts to slow Beale, Brenner and their highly charged regulations failed. As a result, today the “co-benefits” of PM 2.5 are used to justify almost the entirety of the Obama administration’s air quality initiatives even though the immediate benefits still have yet to be proven.

“There is no watchdog now inside the EPA,” laments Steve Milloy, the former editor of JunkScience.com, which has posted a fact sheet that debunks the EPA’s PM 2.5 claims. “Whatever the EPA wants it gets. The agency is allowed to run rampant. There was a time when OIRA use to have stopping power, but now it’s just ignored. OIRA has become a rubber stamp.”

This is especially true of PM 2.5, Milloy says. “There is no real world evidence” PM 2.5 has caused sudden or long-term death, he said. “The claim that PM 2.5 kills people is at the heart and soul of how the EPA is selling these regulations. But it’s a claim that’s not supported by the facts or evidence. The EPA has rigged the whole process.”

Indeed, the purported co-benefits have become the benefits, according to Vitter’s report.

“Historically, EPA used co-benefits in major rules as one of several benefits quantified to justify a rule in the RIA,” the report says. “Yet, at the beginning of the Obama administration, there was a ‘trend towards almost complete reliance on PM 2.5-related health co-benefits.’ Instead of being an ancillary benefit, EPA started using PM 2.5 co-benefits as essentially the only quantified benefit for many CAA regulations.”

The Senate report claims all but five air pollution rules crafted between 2009 and 2011 listed PM 2.5.

Lack of Transparency at EPA

The Clean Air Act requires EPA to set air quality standards to protect public health with an “adequate margin of safety.” In its review of the National Ambient Air Quality Standards, the EPA considers factors such as the nature and severity of health effects, the size of the at-risk groups affected and the science.

Several exhaustive scientific reviews prior and subsequent to the 1997 standards were conducted following open, public processes that allowed for public review and comment prior to updating the standards.

EPA press secretary Liz Purchia told The Daily Signal in an email that the process is open enough.

The National Ambient Air Quality Standards are bolstered by “sound science and legal standards,” she said, and “several exhaustive scientific reviews prior and subsequent to the 1997 standards were conducted following open, public processes that allowed for public review and comment prior to updating the standards.”

She added:

Beale’s involvement in no way undermines the rational basis for the agency’s decisions nor the integrity of the administrative process. Reducing the public’s exposure to ground-level ozone and PM protects millions of Americans from costly and dangerous illness, hospitalization, and premature death.

All that may be true, but the EPA still won’t provide the underlying data to put the matter to rest.

Vitter and his team say this is because the EPA can continue to overstate the benefits and understate the costs of federal regulations—just as Beale did in the 1990s.

“This technique has been applied over the years and burdens the American people today, as up to 80 percent of the benefits associated with all federal regulations are attributed to supposed PM 2.5 reductions,” the report states.

Source

While Congress Is Fighting Over ObamaCare, Obama is Planning His Next Attack On America

By Asylum Watch

Barack Obama is not about to be a “Lame Duck” President if he can help it. He promised to bring about the fundamental transformation of America and to force American energy costs to skyrocket. He has done a pretty good job of meeting his goals so far, but he is not done with us yet.

AZ Leader at Inform the Pundits has an excellent post up on how President Obama and his EPA storm troopers plan to force electricity costs in America to skyrocket. In that post, he provides a link to the President’s “Climate Action Plan“ and a link to  new EPA regulations proposed on Friday. Let’s take a look.

President Obama’s Climate Action Plan

The preamble is taken from President Obama’s 2013 Inaugural Address (Emphasis added):

“We, the people, still believe that our obligations as Americans are not just to ourselves, but to all posterity. We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms.
The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition, we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise. That’s how we will maintain our economic vitality and our national treasure — our forests and waterways, our croplands and snow-capped peaks. That is how we will preserve our planet, commanded to our care by God. That’s what will lend meaning to the creed our fathers once declared.”

– President Obama, Second Inaugural Address, January 2013

Please note the bits I put in bold. The “overwhelming judgment of science” is a scam. Check out this Inform the Pundit article. And, look at this quote from another Inform the Pundit article:

Claims of increased “extreme weather” events are being disproved by scientists. Not only are U.S. hurricanes in decline, but so are tornadoes, droughts, and floods.

That article is full true information backed up by good sources. But the truth never stopped Barack Obama before and it won’t stop him now. So, let’s see what he and his EPA storm troopers have in store for us. Oh, and that “sustainable energy sources” sounds a lot like Agenda 21, doesn’t it?

Continue: Here

The EPA Snake Pit

By Alan Caruba

Under President Obama, two women have been the director of the Environmental Protection Agency (EPA), Carol Browner, who served in the Clinton administration and was one of the “czars” Obama appointed; her acolyte Lisa Jackson, and up for the post is Gina McCarthy. Browner and Jackson went out of their way to conceal their internal communications from Congress and McCarthy lied to the committee considering her nomination.

How bad is the EPA? The Society of Environmental Journalists, on the occasion of the April 11 hearing on McCarthy’s nomination, released a statement that said, “The Obama administration has been anything but transparent in its dealings with reporters seeking information, interviews and clarification on a host of environmental, health and public lands issues.” The SEJ accused the EPA of being “one of the most closed, opaque agencies to the press.”

Apparently, the primary consideration for the job of EPA Director is an intense desire to destroy the use of hydrocarbons, oil, coal and natural gas, for transportation and all other forms of energy on which our economy depends. Obama, when campaigning in 2008, made it clear he wanted end the use of coal to generate electricity. At the time, fifty percent of all electricity was produced by coal and now that figure is in decline as coal-fired plants are being forced to close thanks to EPA regulations.

If Ms. McCarthy has her way, the cost of driving cars and trucks will go up in the name of protecting the health of Americans. As Paul Driessen, a senior policy advisor for the Committee For a Constructive Tomorrow, recently noted, “Since 1970, America’s cars have eliminated 99% of pollutants that once came out of tailpipes.” Joel Schwartz, co-author of “Air Quality in America”, points out, “Today’s cars are essentially zero-emission vehicles, compared to 1970 models.” The EPA’s latest attack on drivers is the implementation of “Tier 3 rules” intended to reduce sulfur levels to achieve zero air quality or health benefits.

Suffice to say that the air and water in America is clean, very clean. Whatever health hazards existed in the 1970s no longer exist. Like all bureaucracies, the EPA now exists to expand its budget and its control over our lives. The Heritage Foundation has calculated that Obama’s EPA’s twenty “major” regulations—those that cost $100 million or more annually—could cost the U.S. more than $36 billion per year. Obama’s EPA has generated 1,920 new regulations.

Don’t think of the EPA as a government agency. It is a weapon of economic destruction.

This has not gone unnoticed. A recent Wall Street Journal opinion by John Barrasso, a Republican Senator from Wyoming, noted that “During President Obama’s first term, EPA policies discouraged energy exploration, buried job creators under red tape, and deliberately hid information from the public.”

“Many EPA regulations,” said Sen. Barrasso, “chased microscopic benefits at maximum cost,” noting for example that “The EPA has proposed dropping the acceptable amount of ozone in the air from the 75 parts per billion allowed today to 60 or 70 parts per billion. The agency concedes that the rule would have a minimal effect on American’s health, but says it would cost as much as $90 billion a year. A study by the Manufacturers Alliance for Productivity and Innovation estimated it would eliminate up to 7.3 million jobs in a wide variety of industries, including refining.”

The other sector in the EPA’s bull’s eye is agriculture. Not content with laying siege to auto manufacturers, oil refineries, coal-fired plants, and all other energy users that might generate carbon dioxide and other so-called greenhouse gases, Barrasso noted that the EPA “has gathered personal information about tens of thousands of livestock farmers and the locations of their operations” which it then shared with environmental groups.

Writing in The Daily Caller, Henry Miller, a physician and molecular biologist and currently the Robert Wesson Fellow in Scientific Philosophy and Public Policy at Stanford University’s Hoover Institution, characterized the EPA as “a miasma populated by the most radical, disaffected and anti-industry discards from other agencies,” adding that there was “entrenched institutional paranoia and an oppositional world view.”

“Unscientific policies and regulatory grandiosity and excess,” wrote Dr. Miller, “are not EPA’s only failings; neglecting to weigh costs and benefits is shockingly common, noting that “The EPA’s repeated failures should not come as a surprise because the agency has long been a haven for scientifically insupportable policies perpetrated by anti-technology ideologues.”

Marlo Lewis, a senior fellow at the Competitive Enterprise Institute, writing in Forbes magazine, pointed out Gina McCarthy, the nominee to direct the EPA, “has a history of misleading Congress and the public about her agency’s greenhouse gas regulations. “At a hearing of the House Oversight and Government Reform Committee in October 2011, McCarthy denied motor vehicle greenhouse gas emission standards are “related to” fuel economy standards. In doing so,” said Lewis, “she denied plain facts she must know to be true. She did so under oath.”

“The EPA has no statutory authority to regulate fuel economy. More importantly, the federal Energy Policy and Conservation Act prohibits states from adopting laws or regulations ‘related to’ fuel economy.”

The point of this exercise is demonstrate that the EPA is the very definition of a “rogue agency” for which neither laws, nor science, are of any consequence as it pursues policies that do incalculable harm at a time when the nation is deep in debt and in need of economic growth, not regulatory strangulation.

© Alan Caruba, 2013

Source

BP: Current U.S. Gulf Operations Untouched by EPA’s Suspension

BP was quick to react after the US Environmental Protection Agency (EPA) today issued a press release in which it said that the British oil giant would be temporary banned from making new arrangements with the federal government.

In a statement issued on its website BP highlighted that the temporary suspension relates only to future potential contracts with the U.S. government and won’t affect any existing contracts the company has with the US government, including those relating to current and ongoing drilling and production operations in the Gulf of Mexico.

To remind, EPA explained the move as a necessary action“due to BP’s lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill, and response.”

The suspension will remain in force until BP can provide sufficient evidence to EPA demonstrating that it meets Federal business standards, EPA explained in its press release.

One year suspension?

In its response BP, headquartered in London, said it has already provided EPA with a statement of more than 100 pages and supplemental answers to the EPA’s questions based on that submission, to prove itself a responsible company able to do business with the government.

BP, which two weeks ago pleaded guilty for its conduct relating to the Deepwater Horizon blowout, explosion, oil spill and response, said it was notified by EPA that the suspension could be lifted soon. Some sources, such as Forbes and Federal Times claim that the ban could last for one year, while The Washington Post predicts the suspension could be in force until the end of legal proceedings related to the oil spill disaster.

BP added the company has made significant enhancements since the accident, saying that immediately after the Deepwater Horizon accident, the company launched an internal investigation, publicly released the results, made changes to the management, and has been implementing all 26 of the investigation’s recommendations.

“In the two and a half years since the Deepwater Horizon accident, the US government has granted BP more than 50 new leases in the Gulf of Mexico, where the company has been drilling safely since the government moratorium was lifted,”  BP said.

Markey: Righteous Punishment

Representative Edward J. Markey today, on his blog, praised the Obama administration move: “…suspending BP’s access to contracts with our government is the right thing to do…When someone recklessly crashes a car, their license and keys are taken away. The wreckage of BP’s recklessness is still sitting at the bottom of the ocean and this kind of time out is an appropriate element of the suite of criminal, civil and economic punishments that BP should pay for their disaster.”

No BP bids

The U.S. Bureau of Ocean Energy Management today held Western Gulf of Mexico Lease Sale 229, which offered over 20 millions acres and attracted more that $133 million in high bids for the acreage in the U.S. Outer Continental Shelf (OCS) offshore Texas. Thirteen companies submitted the bids, and BP was not one of them, The Washington Post reports, citing sources close to the UK-based oil giant.

BP: Current U.S. Gulf Operations Untouched by EPA’s Suspension| Offshore Energy Today.

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Coal Vs. Gas: This is why Americans need an Energy Policy that “WORKS’”

Coal Is Dead; Long Live Natural Gas

July 13, 2012

Major coal manufacturers in the United States, including Arch Coal Inc (ACI), Alpha Natural Resources, Inc. (ANR), Peabody Energy Corporation (BTU), and James River Coal Company (JRCC), made the same mistake the predecessors of today’s oil giants, such as BP p.l.c. (BP) and Exxon Mobil Corporation (XOM), made in the 1980s. They built up too much capacity when commodity price was high, raising their own fixed cost structure and increasing their debt burdens along the way.

When reality turned out to be different from expectations, coal price collapsed with natural gas flooding the electricity generating market. Since natural gas is more efficient, cleaner, and now inexpensive, the coal industry as a whole faces major trouble. Power generation from natural gas has matched coal for the first time. This major trend appears unstoppable. And the worst may be yet to come. All coal miners will have to downsize, and more will go bust.

Within the United States, coal consumption has dropped sharply during recent years as natural gas gradually becomes cheap and abundant, replacing thermal coal in power plants. The following chart shows this trend vividly.

In the meantime, U.S. coal stocks have been rising as supply constantly outruns demand, which almost inevitably leads to lower prices. Given coal miners’ razor-thin profit margin in general, a small coal price movement often translates into huge stock price swings.

And finally, as coal production piles up, the export of coal has been rising sharply (in the following chart). The sharp rise in exports is a consequence of price collapse—it becomes so cheap that it’s a better deal for other continents to ship coal across the ocean, still cheaper than digging in their own backyards. Coal mining is a dirty business, polluting self while serving cheap coal to other countries perhaps wouldn’t serve the industry well politically.

Given such overwhelming trends, one has to be very suspicious of the sustainability of this industry for years to come. One possible policy change that might help coal mining is that the environmentalists and the EPA manage to stop hydraulic fracturing of natural gas, which will curb natural gas supply and make dirtier coal a viable option again—a bit ironic, isn’t it?

The one that might do better than the others is Walter Energy, Inc. (WLT), which has a focus on metallurgical coal for the steel industry, and is not so much dependent on thermal coal (for burning).

So what about natural gas? Would major natural gas businesses such as Chesapeake Energy Corporation (CHK) become the new king? Not necessarily. With abundant reserve and a relatively cheap way of exploration, competition will be fierce. Big players like Exxon Mobile still have an edge in financial resources. At the end of the day, companies like Chesapeake are not necessarily winners even if natural gas becomes mainstream.

Overall, investors shall not count on a turnaround of the coal industry like what happened during the last roller coaster cycle of coal prices.

Source

Shale Gas Boom: Hydraulic Fracturing and Potential Legal Claims

Joshua W. Mermis
Friday, June 22, 2012

A “gas rush” is revitalizing the domestic petroleum exploration industry, and the legal ramifications could be felt for decades. Through hydraulic fracturing (fracking), petroleum companies access once cost prohibitive shale gas formations by creating fractures in underground rock formations, thereby facilitating oil or gas production by providing pathways for oil or gas to flow to the well. These pathways are commonly referred to as the “fractures.” The legal consequences of fracking could impact more than half of the Lower 48 states.

Background of Hydraulic Fracturing

The basic technique of fracking is not new. In fact, fracking has been used in wells since the late 1940s. The first commercial fracking job took place in 1949 in Velma, Oklahoma, however, sequestered layers of shale gas were inaccessible until 1985, when pioneers such as Mitchell Energy and Development Corporation combined fracking with a newer technology called directional, or horizontal drilling in the Austin Chalk. Directional drilling gave producers access to the shale gas because it allowed them to turn a downward- plodding drill bit as much as 90 degrees and continue drilling within the layer for thousands of additional feet. The positive results were soon transferred to the Barnett Shale in North Texas. To date, more than one million wells have been fractured.
The “hottest” shale plays are as follows:

  • Bakken (Montana, South Dakota and North Dakota)
  • Barnett Shale (Texas)
  • Eagle Ford (Texas)
  • Haynesville (Arkansas, Louisiana, and Texas)
  • Marcellus Shale (New York, Ohio, Pennsylvania, and West Virginia)
  • Utica (Kentucky, Maryland, New York, Ohio, Pennsylvania, Tennessee, West Virginia and Virginia)

Confirmed and/or prospective shale plays are also found in Alabama, California, Colorado, Illinois, Indiana, Kansas, Michigan, Mississippi, Missouri, Nebraska, Utah and Wyoming. Shale plays have been confirmed in countries around the world, but the US is the leader in shale gas exploration.

More Money, More Problems

The new application of an old technology made it possible to profitably produce oil and gas from shale formations. Domestic and international companies quickly rushed to capitalize on the large reservoirs of shale gas. But unlike the preceding decades, where new oil and gas exploration had occurred offshore and in deepwater, oil and gas drilling started to occur in areas that were not accustomed to oil and gas activity. Overnight ranchers became millionaires as landmen leased large swaths of property to drill. The media started reporting about enormous domestic supplies of oil and gas that could be profitably produced from shale formations and politicians touted energy independence that could alleviate the country’s demand for foreign reserves. But with the increased attention came increased scrutiny.

Environmental groups have criticized the industry for fracking. The chief concern is that fracking will contamination of drinking water. Movies such as “Gasland” and “Gasland 2” fueled the public’s concerns that the drilling caused polluted water wells and flammable kitchen faucets. Additionally, the industry received criticism for the engineering process that involved high-rate, high-pressure injections of large volumes of water and some chemicals into a well to facilitate the fracking. The EPA and state regulatory bodies have become involved in the discussion and new regulations are likely to follow. In the meantime, some lawsuits have already been filed.

Pending Hydraulic Fracturing Litigation

Plaintiffs have filed approximately forty shale-related lawsuits across the country. These lawsuits include: (1) tort lawsuits; (2) environmental lawsuits; or (3) industry lawsuits. As the shale boom accelerates more suits are anticipated.

1. Tort Lawsuits

Tort lawsuits have been brought by individuals and as class actions. Typically the claimants assert claims for trespass, nuisance, negligence and strict liability. Their complaints involve excessive noise, increased seismic activity, environmental contamination (air, soil and groundwater), diminution in property value, death of livestock/animals, mental anguish and emotional distress. The plaintiffs seek actual damages and, in some instances, injunctive relief. A few parties have even sought the establishment of a medical monitoring fund. The majority of these lawsuits have been filed in Texas, Pennsylvania and Louisiana. The first wave of lawsuits has established new law in the respective jurisdictions as the appellate courts weigh in with published opinions on issues that range from oil and gas lease forfeiture, consequences of forged contracts and contract formation.

2. Environmental Lawsuits

Environmental organizations and some citizen groups are seeking to enforce environmental laws and regulations in an effort to protect the environment and the public from what the litigants perceive to be negative consequences of fracking. In some instances they are even seeking to restrict the use of hydraulic fracking until it is proven to be environmentally safe. A popular target among these litigants is federal and state regulatory bodies, such as the EPA, and federal statutes, such as the Clean Air Act.

3. Industry Lawsuits

The final category of lawsuits includes those brought by the industry against the government. Claimants have sought to challenge federal, state and local government actions that have impeded the industry’s ability to drill.

Fracking Lawsuits 2.0 – Transportation, Construction, Personal Injury and Beyond

The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.

  • Transportation: The survey of current fracking lawsuits does not take into account the claims that will spin out of the new shale plays. In fact, the engineering and logistical side of the fracking process – not fracking itself – will lead to many more attendant claims.
  • Commercial: Lessor involved in mineral disputes will lead to commercial claims. Many lessors will feel they were shorted, or want a better deal as those now positioned to lease their rights sign a more lucrative mineral-rights lease. Company-to-company disputes will also rise as the price of natural gas fluctuates.
  • Construction: The contractors and design professionals building the midstream facilities, among others, will lead to construction-defect and delay claims. Many states have recently adopted anti-indemnity statutes that will impact claims that arise during construction of midstream facilities, pipelines and other infrastructure-related construction projects.
  • Insurance: Coverage issues will arise as parties file first- and third-party claims for myriad reasons. Issues including comparative indemnity agreements, flow-through indemnity and additional insured endorsements, among others, will need to be analyzed.
  • Personal Injury: Additional workers drilling and working the wells will lead to an increase in personal injury and work-place accident claims. Many of the shale plays are located in what have traditionally been considered “plaintiff friendly” venues. A claim in Pennsylvania will have a different value than one located in Webb County, Texas.
  • Product Liability: The products and chemicals used to drill and extract the oil and gas will lead to product liability claims involving both personal and property damage. The BP Deep Water Horizon well-blowout in the Gulf of Mexico will not be lost on those involved in domestic oil and gas exploration.

How To Reduce Future Fracking Litigation Risk?

Parties can act now to discourage litigation or better position themselves in the event they are named in a suit.

1. Institute electronic records protocol

The proliferation of email and increased retention and archival capabilities means that emails never die. A potential defendant would be well served with a protocol in place that outlines to its employees what are acceptable electronic communications.

2. Strictly comply with fracking fluid disclosures

For those parties who could be exposed to claims regarding the fluids used during drilling, it is important that they minimize the public’s suspicion that they are withholding information about the fluids. The best way to neutralize that misconception is to strictly comply with the state-mandated disclosure rules where applicable. It may even behoove them to voluntarily disclose the fluids’ contents through the
companies’ websites.

3. Be prepared for a fire-drill

A party must be ready to quickly assert its position when a claim is brought. The best way to do so is to track current litigation. Following the cases will provide the company a preview as to what claims it may be subject to, and it also allows them to evaluate defenses. It may also enable the company to insulate itself from suit by avoiding certain actions. Along those same lines, knowing the facts, documents, emails, fact witnesses and expert witnesses will work to a party’s advantage. Some industry leaders have proactively retained experts even though they have not been sued.

4. Know your neighbors

Parties should view their neighbors as allies and potential jurors. To that end, it makes sense to open a dialogue about fracking with the regulators on a local, state and federal level. It would also benefit the parties to engage the community and publicize information about the benefits associated with fracking, e.g., jobs, lower energy prices, cleaner energy, energy independence, etc. Certain midstream players have rolled out a public education campaigns aimed at that very goal.

Conclusion

Articles on shale gas and fracking adorn the front pages of the Wall Street Journal and New York Times. 60 Minutes runs stories on shale-gas drilling and the faux pundit Stephen Colbert discusses fracking’s impact on his tongue-and-cheek news show. The promise of profits, domestic jobs and energy independence has the country talking about the gas shale plays that dot the landscape. Fracking and all that it encompasses will serve as the backdrop for a variety of legal issues during the foreseeable future.

Joshua W. Mermis is a partner at Johnson, Trent, West & Taylor in Houston, Texas, where he primarily practices in construction and energy litigation. He received his B.A. from the University of Kansas and J.D. from the University of Texas School of Law. This article previously appeared in the Spring/Summer 2012 issue of USLAW magazine.

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USA: Imperial Presidency

Matthew Spalding, Ph.D.
June 22, 2012 at 9:06 am

The United States was born when rebellious colonists declared their independence from an imperial ruler who had vastly overstepped his bounds. “The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States,” they wrote in their Declaration of Independence.

Today’s presidency lacks the regal air of George III. But imperialism is back, in a big way.

Last week, the Obama Administration’s Department of Homeland Security issued a memorandum instructing U.S. immigration officials to use their “prosecutorial discretion” to create a policy scheme contrary to existing law, designed to implement legislation that Congress hasn’t passed.

The President himself has admitted he doesn’t have the authority to do this. “The idea of doing things on my own is very tempting, I promise you, not just on immigration reform. But that’s not how our system works,” he told Hispanic activists last year. “That’s not how our democracy functions.”

Indeed.

We can now see before us a persistent pattern of disregard for the powers of the legislative branch in favor of administrative decision-making without—and often in spite of—congressional action.  This violates the spirit—and potentially the letter—of the Constitution’s separation of the legislative and executive powers of Congress and the President.

Examples abound:

  • Even though the Democrat-controlled Senate rejected the President’s cap-and-trade plan, his Environmental Protection Agency classified carbon dioxide, the compound that sustains vegetative life, as a pollutant so that it could regulate it under the Clean Air Act.
  • After the Employee Free Choice Act—designed to bolster labor unions’ dwindling membership rolls—was defeated by Congress, the National Labor Relations Board announced a rule that would implement “snap elections” for union representation, limiting employers’ abilities to make their case to workers and virtually guaranteeing a higher rate of unionization at the expense of workplace democracy.
  • After an Internet regulation proposal failed to make it through Congress, the Federal Communications Commission announced that it would regulate the Web anyway, even despite a federal court’s ruling that it had no authority to do so.
  • Although Congress consistently has barred the Department of Education from getting involved in curriculum matters, the Administration has offered waivers for the No Child Left Behind law in exchange for states adopting national education standards, all without congressional authorization.

Likewise, the Administration has often simply refused to enforce laws duly enacted by Congress:

  • Since it objects to existing federal immigration laws, the Administration has decided to apply those laws selectively and actively prevent the state (like Arizona) from enforcing those laws themselves.
  • Rather than push Congress to repeal federal laws against marijuana use, the Department of Justice (DOJ) simply decided it would no longer enforce those laws.
  • DOJ also has announced that it would stop enforcing the Defense of Marriage Act or defending it from legal challenge rather than seeking legislative recourse.

On Tuesday, the President invoked executive privilege to avoid handing over some 1,300 documents in an ongoing Congressional investigation.  The Supreme Court has held that executive privilege cannot be invoked to shield wrongdoing.  Is that what’s happening in this case? “Congress needs to get to the bottom of that question to prevent an illegal invocation of executive privilege and further abuses of power. That will require an index of the withheld documents and an explanation of why each of them is covered by executive privilege—and more,” Heritage legal scholar Todd Gaziano writes.

Earlier this year the President crossed the threshold of constitutionality when he gave “recess appointments” to four officials who were subject to Senate confirmation, even though the Senate wasn’t in recess. Gaziano wrote at the time that such appointments “would render the Senate’s advice and consent role to normal appointments almost meaningless. It is a grave constitutional wrong.”

There is no telling where such disregard may go next, but the trend is clear, and it leads further and further away from the constitutional rule of law.

The President has unique and powerful responsibilities in our constitutional system as chief executive officer, head of state, and commander in chief. Those powers do not include the authority to make laws or to decide which laws to enforce and which to ignore. The President – like judges or Members of Congress – takes an oath to uphold the Constitution in carrying out the responsibilities of his office.

Indeed, the President takes a unique oath, pledging he “shall faithfully execute the Office of President of the United States” and “preserve, protect and defend the Constitution of the United States.” We don’t need a new Declaration of Independence, but we do need a President who will defend and vigorously exert his or her legitimate powers, recognizing that those powers are not arbitrary or unlimited.

Dr. Matthew Spalding is the Vice President for American Studies and Director of the B. Kenneth Simon Center for Principles and Politics at The Heritage Foundation. He is also the author of We Still Hold These Truths.

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The Slippery Slope of Domestic Drones

Posted by Amanda Bowers
originally posted at the Washington State TAC

There are plenty of obvious concerns about the use of domestic drones. Their use by law enforcement is expanding rapidly, and it’s only normal to be concerned about privacy laws. Even if you don’t have a reasonable expectation of privacy in a public place, with drones the size of hummingbirds, will you have a reasonable expectation of privacy on your own property, or even through your own windows? In the long run, what will constitute the need for surveillance? In Washington state it could be a nice new way to fine litterers.

Let’s not forget the original intent of this technology. Drones are used by our military to spy on, and to kill our enemies. Or at least, those we perceive to be our enemies, whether guilt has been proven or not, and with a callous disregard for collateral damage.

While it could be argued that some use of surveillance drones is reasonable; for example, border patrol or missing persons cases, how soon does it become difficult to draw the line? Are we there already?

Just this week members of Congress accused the EPA of using drones to conduct surveillance flights over Iowa and Nebraska farms. Though they were assured by the EPA that they are using only manned aircraft to check for violations of federal clean water laws, it does make one wonder about the right of the EPA to conduct this type of surveillance in the first place. Not to mention the fact that even Congress doesn’t know what the EPA is doing.

We have many large government agencies like this. The EPA might not actually be using drones to monitor your compliance with federal laws now, but how long until they are? With domestic drones getting smaller and easier to come by, it seems that it is only a matter of time. And if the EPA now, then who next? The FDA? It would be a lot easier for them to keep tabs on who you are selling your raw milk to, if they could only monitor everyone who comes and goes from your property.

Then there is the fact that law enforcement is already talking about arming drones with rubber bullets. Of course this is mainly for things like crowd control. But At some point do you look up at the drone flying over head and feel a sudden solidarity with citizens in Islamabad, wondering; am I next? Perhaps the idea seems a little far fetched now, but not so very long ago, the idea of drones surveying your neighborhood was also far fetched.

Welcome to our new reality.

James Madison once warned us that “the means of defense against foreign danger have always been the instruments of tyranny at home.”

Is doesn’t seem like wisdom to treat our government, who can so easily brush off the deaths of hundreds of innocent civilians, as if they are somehow different people when it comes to surveillance here at home. We need to be vigilant about how this technology is used.

H.R. 5925, The Preserving Freedom from Unwarranted Surveillance Act, was recently introduced by Rep. Austin Scott, R-GA, “To protect individual privacy against unwarranted governmental intrusion through the use of the unmanned aerial vehicles commonly called drones, and for other purposes.” The text of the bill is not available yet, but it would require the government to obtain warrants for surveillance purposes.The bill is currently bound up in judicial committee where many bills go – never to be heard from again. It’s a good start though, and a reminder that we can enact our own surveillance regulation in our own states. In the meantime, we should be asking our Congress men and women to support this kind of legislation that would protect our 4th amendment rights.

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